Security Bond Definition

Definition of a Security Bond

The Security Bond Definition is a surety bond that is secured by some sort of collateral. In many surety bond cases, there is not any collateral required. Thus, the surety will simply issue the bond, like a performance bond or payment bond, based on the financial standing of the underlying entity being bonded. However, in a security bond, there is collateral that is required. This collateral cannot be part of the job that makes up the contract underlying the performance and payment bond. Instead, there is required additional collateral, or "security," and this collateral is what is being held.

Some sureties ask for an irrevocable letter of credit. This is purely liquid security for the underlying bond. In addition, some sureties will want funds control so that they can write the underlying performance bond.